Expats set to lose their CGT exemption

Australian residents living overseas will now lose the capital gains tax (CGT) exemption on their family home after new laws were passed by Parliament.

The new changes mean that foreign residents who don’t file income taxes will now be forced to pay capital gains tax when they choose to sell the family home. Previously the family home wouldn’t have attracted any taxes if they sold it within a six-year period, in the same way residents are able to sell their principal place of residence and not pay tax.

However, there is some small respite for expats, as the Government has put in place a grandfathering period, meaning that if they sell their family home prior to June 30, 2020, they will be able to keep the exemption. But they had to own the property prior to 8 May 2017 to be eligible for the full exemption.

Darren Morris from Bell Partners, says homeowners, particularly in Sydney and Melbourne, could be facing million dollar tax bills as a result of the changes.

According to Mr Morris, if a Sydney couple purchased a home for $1.2 million dollars and that property is now valued at $3.8 million they will now be forced to pay a significant CGT bill.

“They’ll be taxed on the full capital gain, which will be $2.4 million. So that’s about $550,000 in tax each.”

Mr Morris says that there are some things that expats might look to do to try and navigate the changes.

“One of the strategies expats might consider is coming back to Australia to actually recommence their tax residency to get around that loophole.

“I would suggest you tread very carefully on that practice. I’m not saying that you can’t do it, but the tax office will have an eagle eye on those sorts of practices.”

Mr Morris says investment properties won’t be impacted by the changes and it is only the family home.

“Investment properties are still under the same tax regime as usual so they should still be eligible for a 50 oer cent discount if they’ve held it for more than 12 months.”

There are some means to get around the changes but they are quite stringent, according to Mr Morris.

“You have to have a spouse who is terminally ill or a dependant child under the age of 18 that is terminally ill or has passed away or as part of a marital breakdown.”

The tax changes are expected to negatively impact more than 100,000 Australian’s working overseas and will generate $581 million for the Government.

The changes have been made under the watch of the Morrison Government, in a bid to ease housing affordability. After the steep price rises in the last five years in cities such as Sydney and Melbourne, there were growing concerns that locals were being priced out of the housing market.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.